Based on the following analysis of last year's operations of Bingham, Inc., a financial vice president of the company believes that the firm's total net income could be increa division were discontinued. (Amounts are given in thousands of dollars.) All Other Engineering Last year results Totals Divisions Division Sales $17,250 $12,000 $5,250 Cost of services: Variable (6,140) (3,900) (2,240) Fixed (3,360) (2,100) (1,260) Gross profit 7,750 6,000 1,750 Operating expenses: Variable (4,750) (3,000) (1,750) Fixed (2,500) (1,800) (700)
Based on the following analysis of last year's operations of Bingham, Inc., a financial vice president of the company believes that the firm's total net income could be increa division were discontinued. (Amounts are given in thousands of dollars.) All Other Engineering Last year results Totals Divisions Division Sales $17,250 $12,000 $5,250 Cost of services: Variable (6,140) (3,900) (2,240) Fixed (3,360) (2,100) (1,260) Gross profit 7,750 6,000 1,750 Operating expenses: Variable (4,750) (3,000) (1,750) Fixed (2,500) (1,800) (700)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Dropping Unprofitable Division
Based on the following analysis of last year's operations of Bingham, Inc., a financial vice president of the company believes that the firm's total net income could be increased by $700,000 if its engineering
division were discontinued. (Amounts are given in thousands of dollars.)
All Other Engineering
Last year results
Totals Divisions
Division
Sales
$17,250 $12,000
$5,250
Cost of services:
Variable
(6,140) (3,900)
(2,240)
Fixed
(3,360)
(2,100)
(1,260)
Gross profit
7,750
6,000
1,750
Operating expenses:
Variable
(4,750)
(3,000)
(1,750)
Fixed
(2,500)
(1,800)
(700)
Net income (loss)
$500
$1,200
$(700)
a. Assuming that total fixed costs and expenses would not be affected by discontinuing
the engineering division, is the financial vice president's analysis correct?
No
Prepare a differential analysis to support your answer.
Discontinuance of Engineering Division
Effect on net income
(in thousands)
Increase (decrease) in revenue
(Increase) decrease in cost or expense
Cost of services
Operating expenses
Net increase (decrease) in net income $
Dollars
0 x
0 x
0 %
0
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